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Dec 1, 2018

What messages has the budget conveyed?

A budget is an accounting of incomes and expenditures for individuals or families. However, it is much more than that for a country. A national budget conveys clear messages for the future direction of the national economy. What messages has the budget placed recently by the finance minister in Parliament conveyed?

Investments, particularly in productive assets, are necessary to create jobs to produce a prosperous Bangladesh. Joblessness is a monumental problem in our country. Although our GDP growth rate is roughly 7 percent, it has largely been a jobless growth.

We have more than two crore people unemployed, most of whom are young people. About 47 percent graduates of our country are unemployed. More seriously, every year more than 20 lakh young people enter the job market and we need to invest more for their employment. Unfortunately, our private investments have become stuck at about 23 percent of GDP for a long time.

In the present election year, the prospect of increased investments is bleak. According to UNCTAD, foreign investments declined nearly 8 percent last year. In our self-defeating, toxic political environment, many of our local investors have already lost interest in investing in Bangladesh. Instead they have been illicitly transferring money abroad. For example, according to a report by Global Financial Integrity, during 2005-14, a total of USD 61.63 billion was illegally transferred abroad from Bangladesh. The highest amount of USD 9.66 billion was transferred in 2013. The finance minister's inability to bring back these illicitly transferred monies or offer new incentives for productive investments is not a positive message.

The most important resource of Bangladesh is its young people. Nearly half of our population is 24 or younger, bestowing a “demographic dividend” on us. A younger person is generally more of a producer than a consumer. S/he is usually more innovative and less risk-averse. Thus, the socio-economic betterment of a nation can be greatly accelerated by taking advantage of this demographic dividend, which does not last for long.

Taking advantage of the demographic dividend requires providing quality education to the youth. This means ensuring good health for them and creating opportunities, especially job opportunities for them. Otherwise, the youth may go astray. A section of our youth has already become addicted to drugs and involved in criminal activities. If this trend continues, our demographic dividend may turn into a demographic nightmare. Unfortunately, the budget has not provided for enhancing the capabilities of the youth, nor for creating employment opportunities for them.

In fact, investments in the social sector have been increasingly declining in Bangladesh. For example, while the allocation for education was 14.3 percent of the budget in 2010, it declined to 12.6 percent in 2017-18 and again to 11.41 percent in the coming fiscal year. Similarly, the budget outlays for health have declined from 5.39 percent last year, to 5 percent this year.

Our investments in health and education have also been declining compared to international standards. For instance, internationally, the GDP share devoted to education is 6 percent and the percentage of the budget allocated to education is 20 percent. In our country, however, these numbers are 2.09 percent and 11.2 percent, respectively. Similarly, while the GDP share of the health budget is 5 percent internationally, it is only 0.92 percent for Bangladesh. What message has the finance minister sent through these inadequate investments in our social service sector?

Let us come to the economic disparity. The GINI coefficient, which measures the income disparity between rich and poor, changed from 0.485 in 2010 to 0.483 in 2016. This reflects increasing disparity in income and opportunities in Bangladesh. That is why the income share of the richest 5 percent relative to the poorest 5 percent of our population increased from 31 times in 2010 to 121 times in 2016. Unfortunately, the proposed budget provides no sense of direction to redress this situation.

But unrestrained opportunities created to loot and plunder the financial sector may worsen this disparity. According to the president of FBCCI, bandits are on the loose in our banking sector. It seems the bandits have been allowed to get away. The proposed budget may even be encouraging them to continue doing so.

During the reign of the present finance minister, the ruling party supporters/leaders were inducted into the governing bodies of publicly owned banks as a means of providing patronage. At the beginning of this year, the government legally sanctioned dynastic rule in banks by allowing four members of a family to be on their board for nine consecutive years. Recently, the finance minister has increased the proportion of government deposits in private banks to 50 percent. The budget also proposed an allocation of Tk 2,000 crore to replenish the capital shortage of public banks caused by looting. Public banks had liquidity crises in the past due to these complicities. Private banks are now facing similar problems.

What message is the finance minister thus trying to convey by not taking punitive actions against the culprits, by again allocating money to replenish the capital shortage of banks and proposing to lower their tax rates by 2.5 percent? Does this not encourage indiscipline, looting and lawlessness in the banking sector? It must be noted that replenishing capital shortage with taxpayers' money represents a transfer of resources from the common people to the bank looters. This will only worsen the growing economic disparity in the society. Even though the bank owners are given many undue benefits, the finance minister unfortunately has failed to declare a new MPO programme for teachers, for which they took to the street.

The finance minister proposed to increase the allocation for the social safety net from Tk 54,206 crore (13.54 percent of the budget) in the past year to Tk 64,656 crore (13.92 percent) this year. This is claimed to be good news for the poor. But this is misleading as over 35 percent of outlays for social safety net is spent for pensions for government functionaries, not all of whom are poor.

It is clear that the finance minister in his proposed budget has not done justice to those belonging to the lower economic strata, especially the poor. Another example of this injustice is his inability to increase the minimum taxable income from Tk 2,50,000. In contrast, he has generously catered to vested interests.

Finally, our finance minister is the most experienced and senior most member of the cabinet. This is the 12th budget he has authored. We hoped that he would propose some far-reaching reforms and impose discipline and good governance in the financial sector. At the same time, we hoped that he would bring budget-making out of the box, in which it has been trapped for many decades. Unfortunately, we are disappointed.